Developer admits funding problem has stalled Menlo Gateway project

By Bonnie Eslinger

Daily News Staff Writer

Posted:
12/19/2012 03:00:00 AM PST

Two years after a majority of Menlo Park voters supported construction of an office-hotel-health club complex in the city's east side, the entire project is on hold while the developer tries to secure funding for the hotel.

"Hotels are very, very sensitive to the economy," developer David Bohannon said in a phone interview Tuesday. "If you can put together the leases for an office asset, you can get financing. A hotel doesn't have leases; it has promises for someone to stay one or two nights."

On Monday, during the Menlo Park Planning Commission's annual review of his proposed project, Bohannon reported that the struggling economy has made his efforts to obtain hotel funding difficult.

After several rounds of questions about the different types of financing packages he was trying to pursue, commissioners unanimously determined Bohannon was making a "good faith" effort to comply with the development agreement.

Bohannon's proposed 16-acre Menlo Gateway project would feature a 230-room hotel, health club, restaurant and three eight-story office buildings on the east side of Highway 101. When the proposal was placed on the ballot in November 2010, supporters touted the jobs, millions of dollars in annual revenue and public benefits it would bring to the city. Ballot Measure T was approved by 64.5 percent of voters.

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As part of a development agreement Bohannon reached with the city in 2010, the hotel has to be constructed first or concurrently with the office buildings. The deal also includes guaranteed hotel revenue for the city -- estimated at $1.25 million that year with a 2 percent increase each following year.

In return, the city agreed to change zoning to allow higher office density in the project area along Independence and Constitution drives, between Marsh Road and Chrysler Drive.

"The money can't stay on the sidelines forever," Bohannon told The Daily News, adding that he expects economic conditions to improve in a year or so.

Asked if he wished the city would release him from the pact to build the hotel first, Bohannon said yes.

"And I probably think it would be in the interest for the city to do that, but that's the deal we made," Bohannon said. "From the perspective of jobs and the economy, having that office project is going to be a good thing."

Council Member Rich Cline, who was mayor in 2010 when the development agreement was struck and the project approved, said Tuesday he doesn't think the offices should be built without the hotel.

"There was great analysis behind the decision and heavy community participation as well as a public vote on the matter, and most parties understood the hotel revenue is the primary reason the offices were approved," Cline wrote in an email.

Council Member Kirsten Keith expressed a similar concern, noting that the ballot argument for Measure T promised the hotel would come first.

"That was what the voters approved," Keith said in a phone interview.

To keep the negotiated development agreement intact, Bohannon needs to submit building permit plans for the hotel by 2015 or pay the city $300,000 for a two-year extension, according to a staff memo.